The oil price collapse and climate policy

Dec 15, 2014 Comments Off on The oil price collapse and climate policy by

The current oil price is falling because the world economy is slowing down – for example a faltering Chinese economy. At the same time, the preceding period of high oil and gas prices incentivised the shale oil and gas boom which brought new supply onto the market via fracking technology. Thus the overall supply of oil and gas has held up, even though conventional oil production passed its global peak several years ago.

With demand for oil falling because of the coming recession and oil production NOT falling the result is that prices have come down with a bump. OPEC, led by Saudi Arabia, could have cut production but decided that they want prices to fall in order to drive the shale sector in the US out of business. To extract shale oil and gas is a costly business in most places and if prices for oil and gas are low then costs may not be covered. That means that the highest cost part of the sector could be put out of business.

It has also been suggested that the US is in cahoots with Saudi Arabia and want to make life difficult for Putin and Russia. The core of the Russia economy is the export of oil and gas and Russia then imports a large proportion of its other consumption goods which are made in other countries. Thus a fall in the oil price and a fall in the exchange rate for the Rouble is catastrophic for the russian economy. Not only does it hit state finances, and not only are the oligarchs taking their money abroad, it also means that all those consumption goods purchased from abroad are going up in price.

However, if there is such a conspiracy between Saudi Arabia and the USA to achieve this then it was a decision to sacrifice a part of the shale gas sector to wage war on Russia. Given the damage that this might do the US economy I’m a bit sceptical about this idea but it would not surprise me if paranoid members of the Russian elite, many of whom are ex members of the secret service, the FSB, see it this way.

Whatever. This is all market stuff and geopolitics and, have nothing to do with the more important things that should be concerning us – the climate and climate policy. From a climate perspective it is bad news that oil and gas production is not being cut back.

We know that from a climate point of view global production of oil and gas (and coal) needs to fall at a very rapid rate. From the point of view of consumers of oil the falling does nothing to get them to cut back on their consumption. Furthermore the falling oil price not only undermines the shale sector but it also undermines energy efficiency work and the further development of renewables. No doubt the Saudis also intend this.

Hence the need for a global carbon cap imposed in an equitable fashion is still there as much as it always was. However the different factions of the global monetocracy would prefer to play geopolitical board games with each other – and fight for shares of the future energy market – with the low cost energy producers like Saudi trying to drive out high cost ones. (I use the terms low and high cost in the conventional sense to mean money cost – the environmental costs are different). Anyway the need to respond to the climate crisis is the last thing on their tiny minds of the political elite.

Perhaps the only “positive thing” that you might see in the current situation is that by driving shale oil and gas producers out business OPEC under Saudi leadership could be slowing continued investment in the shale oil and gas sector and thus limiting future production capacity. I should add here that they may also bring about a more serious recession and a deflationary spiral in the US and globally because Wall Street is so heavily invested in the shale bubble that the bursting of this bubble could lead to a much more generalised financial and economic crisis.

If that happens the oil price could fall yet again but only because no one could afford to buy oil at any price in the context of a deflationary collapse of the global economy.

Featured image: oil platform. Author: Kasey Houston Source: http://www.freeimages.com/photo/1404721

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About the author

Brian Davey trained as an economist but, aside from a brief spell working in eastern Germany showing how to do community development work, has spent most of his life working in the community and voluntary sector in Nottingham particularly in health promotion, mental health and environmental fields. He helped form Ecoworks, a community garden and environmental project for people with mental health problems. He is a member of Feasta Climate Working Group and former co-ordinator of the Cap and Share Campaign. He is editor of the Feasta book Sharing for Survival: Restoring the Climate, the Commons and Society, and the author of Credo: Economic Beliefs in a World in Crisis.

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